Question 8 How would you expect the indifference curve to be

Question 8 How would you expect the indifference curve to behave for a worker who experiences an increase in income based on the income effect? Shift to the right O Shift to the left O Move upwards along the labor/leisure tradeoff curve O Move downwards along the labor leisure tradeoff curve

Solution

Q8 option a.

The indifference curve is rising upwards to the right.

This shows that the consumer successively moves on a higher indifference curve and becomes well off with increase in his or her income,he or she increases the consumption of goods and the income effect is positive for those goods.

Q9. Option b.

In the substitution effect, the increase in the real Income of the consumer,as a result in fall in price of a good is such that is neither better off nor worse off than before.

With the fall in price of a good, the real Income of the consumer increases.

To make this variation in income constant,

His increase in Income shifts to the left until it becomes tangent to the initial indifference curve.